Last year, I had surgery on my left knee due to a meniscus tear. Recently, my doctor said, “You have jealous joints” during my pre-op physical for surgery on my right knee. If you’re wondering why I needed another surgery, I’ll sum it up with one word…racquetball. This most recent surgery was also for a meniscus tear. Since Lesia, my wife, and I had already hit our deductible for the year, I figured I’d go ahead and have surgery. What can I say? My goal is to spend well.
Lesia created a FaceBook post about my operation and I received a comment about my surgery budget (thanks Marie). We have a HDHP (High-deductible Health Insurance Plan) and qualify for an HSA (Health Savings Account). Because of our family plan, we can save (pre-tax) up to $6,850 for 2018 towards qualified medical expenses (i.e., copayments, coinsurance, deductibles, and other amounts, but not premiums).
Prior to my surgery, I phoned our insurance provider to get an estimate of the out-of-pocket expense. I had already been informed that a $400 deposit was due on the day of the surgery. Because we contribute money to our HSA each month, we used our HSA debit card to pay the deposit. This particular pot of money has been growing for years (you can’t lose what you don’t use) and utilizing it did not impact our monthly budget. We simply tapped a resource that was already available. The cool part is that using the pre-tax HSA money actually saved us even more money. In order to attain $400 in after tax money (cold hard cash), we would need to earn roughly $520 (taxes, social security, and Medicare included). By having the HSA in place, we make pre-tax contributions and decrease our taxable income.
In summary, here are a few advantages of an HSA:
Contributions are pre-tax
Contributions are tax-deductible (i.e., decrease taxable income)
If contributions are made via payroll deduction, FICA (Federal Insurance Contributions Act – Social Security and Medicare) is avoided. That’s 7.65% more in your HSA.
Money you don’t use rolls over every year
Money can be invested to make even more money
Contributions are allowed until you’re over 65 (age Medicare begins)